We have many examples, but let us look around closer.
Despite the government’s rhetoric about macroeconomic stabilization, the lived reality for millions of Pakistanis – eroded purchasing power and stagnant wages – tells a different story. Islamabad should look to Indonesia, a fellow Muslim-majority country, which has become a successful example of consistent GDP growth.
Pakistan’s population is approximately 250 million; however, its consumption side is unimpressive due to low GDP per capita, compared to its neighbors. Meanwhile, in Southeast Asia, Indonesia with a GDP per capita of approximately $5000, but its real engine is its consumption-based economy.
In this article, I will make a case for how Pakistan can learn from Indonesia’s economic success.
A country whose GDP growth was severely affected, and inflation was at record high levels in the late 1990s due to the Asian Financial Crisis, rebounded by showing its strength during subsequent global upheavals, the Financial Crisis, and the Taper Tantrum – a market panic.
In the aftermath of the AFC, Indonesia underwent rigorous economic reforms, reshaping its economic model significantly. Indonesia granted independence to its central bank, which was serving at the time under the strong political influence, to bail out large government spending and fiscal deficits. Thanks, in part, to IMF pressure pushing Jakarta for necessary reforms, which gave a bitter but essential medicine for economic recovery.
However, the Indonesian government left the IMF program in 2003 and introduced reforms that were internally driven. Manufacturing and production were improved, resulting in employment and a surge in fiscal revenues.
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In 2014, the Jokowi government boldly banned raw nickel exports, shifting focus to the export of value-added products. Today, Indonesia is the leading country in nickel mine production. Crucially, the important point is that the ban was not imposed overnight, but went through different stages. After the complete ban in 2020, FDI surged dramatically, mainly directed toward the mining sector.
Indonesia’s journey from crises to continuity presented a compelling case for Islamabad. The Pakistani government claims the country has $6 trillion worth of untapped resources. Islamabad must adopt a similar strategy. Instead of exporting raw materials, a phased and long-term policy should be adopted to incentivize value addition and nurture an ecosystem capable of driving downstream industries.
Domestic consumption and investment are the key pillars of Indonesia’s economy, with growth primarily driven by these factors. A massive network of infrastructure has been laid across the entire country, and separatist resistance waned due to increased autonomy and economic opportunities.
These successes are just the tip of the iceberg. Export restrictions and privatization were introduced, but carefully. The colonial past is rooted deeply in the DNA of Indonesians, so they were skeptical of liberalization policies. Nonetheless, many sectors were liberalized to promote competition, while critical sectors remain under government control.
Despite these economic reforms, we can’t underestimate the importance of political reforms. The transformation from Suharto’s authoritarian and centralized rule to democratization and decentralization paved the way for coordinated reforms. After 2004, the next two administrations were elected for consecutive two terms each.
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Ultimately, the political stability created breathing room for policymakers to adopt and implement long-term economic strategies. Furthermore, no administration derailed the economic reform process; rather, each inherited a legacy from predecessors, built upon it, and passed it to its successors. This created a powerful compounded effect, where long-term planning triumphed over short-term political temptations.
Fortunately, the most acute phase of the crisis in Pakistan appears to be receding. Inflation is now under control, providing Islamabad a launchpad to drive toward sustainable growth and attract FDI by creating a safe and secure climate for investors. Islamabad also needs to do a substantial amount of homework on political stability, because it’s indispensable for economic growth.
In the era of escalating great power competition, the choices for middle powers are arduous. Islamabad must learn from Jakarta about its maneuvering between Washington and Beijing to maximize its economic benefits from both. It’s an essential survival skill for Pakistan, which can’t be ignored.
In sum, Indonesia is more than just a success story; it provides a recipe for disciplined and strategic growth. Of course, each country has different circumstances, and our situation is no different; learning from others and writing our own formula is what we expect, and Islamabad must understand this crucial point. The question is, are we ready to learn?
*The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of TDI.
Saim Imran
Saim Imran works on Indonesia’s economy at Beaconhouse National University (BNU). He is also the President of Islamabad Society of Discourse, which serves to promote intellectual discourse.
